A stock market index is a measurement of a portion of the stock market. It is calculated from the prices of selected stocks (often a weighted average). It is a tool used by financial managers and investors to describe the market, and to compare the return on specific investments. Below you will find an interactive chart of the FTSE 100 Index. What is the FTSE 100 Index?
The FTSE 100 is the United Kingdom’s (UK) equivalent to the S&P 500. It is looked at as a leading indicator of the UK economy. Investors get exposure to the 100 largest UK companies that are listed on the London Stock Exchange. Several of the companies listed on the FTSE 100 (or Footsie) are headquartered outside of the UK. However, most companies are based in the UK and are impacted by developments inside the company.
The FTSE 100 is weighted by market cap. This means that companies with a higher market cap carry the most weight on the index. For example, if BP PLC which has the fourth-highest market cap on the FTSE 100 as of this writing, reports strong earnings that lift its stock 1%, the value of the FTSE 100 may go up by nearly 2% based on the weighting assigned to BP.
Index funds are a safe way for an investor to invest in a particular market segment without assuming the risk that may be involved with individual equities. Just as index funds exist for different market segments, they also exist for the stock exchanges of many countries. One example is the FTSE 100 index which is the United Kingdom’s version of the U.S. S&P 500 Index. In this article, we’ll take a close look at the FTSE 100 including looking at the current sector composition and the ways investors can invest in the FTSE 100.
What is the FTSE 100 index?
The FTSE is an abbreviation for the Financial Times Stock Exchange. This independent organization goes by the nickname “Footsie”. It is similar in its mission to the Standard & Poor’s in the United States. The FTSE is home to many stock indexes which represent a market segment through a portfolio of stock holdings that are weighted to approximate the performance of that segment.
The London Stock Exchange Group (LSEG) is the parent organization of the FTSE. In addition to owning the FTSE, the LSEG owns other financial organizations including the Russell Indexes (a family of global stock market indices), Borsa Italiana (the Italian stock exchange), and Millennium IT (an information technology firm based in Sri Lanka).
The most recognized index at FTSE is the FTSE 100. The FTSE 100 is comprised of the largest 100 blue-chip stocks on the London Stock Exchange. The FTSE 100 represents approximately 80% of the total market capitalization of the London Stock Exchange. The FTSE uses market-capitalization weighting. This means that the companies on the index that have the highest market cap will have a larger corresponding weight in the index. .
The index updates and publishes every 15 seconds. The FTSE is the United Kingdom’s equivalent to the Nikkei 225 index in Japan and the Hang Seng index in Hong Kong among others.
History of the FTSE 100 index
By investing standards, the FTSE 100 is still in its infancy. The FTSE 100 was created in January 1984 with a base level of 1,000. Like many of the global markets, the FTSE has followed a mostly upward trend with significant corrections that correspond to the “tech wreck” in the early 2000s and the “Great Correction” in 2007. As of November 2019, the index was over 7,350 and is up approximately 10% in 2019. A company does not have to be British to be part of the FTSE. They do, however, have to be listed on the LSE.
What sectors are represented in the FTSE 100 index?
Here are the sectors presented in alphabetical order. The telecommunications sector was dropped from the index in 2018.
- Communications – This sector has only been on the index since 2018. It currently makes up about just over 5% of the index.
- Consumer Discretionary – This sector has been steadily declining in weighting since 2015. It currently makes up 6.27% of the index.
- Consumer Staples – This is the third most heavily weighted sector and is consistently around 15% of the index. In 2019, it carries 15.84% of the index.
- Energy – The energy sector is the second most heavily weighted sector and has been growing in influence since 2014. It currently represents just over 17% of the index (17.07%).
- Financials – This sector carries the heaviest weight in the index. Financials have typically accounted for one-fifth of the index. In 2019, this sector accounts for 20.65% of the index.
- Health Care – The health care sector has been consistently around 10% of the index for the last six years. In 2019, it comprises 9.57% which is comparable to 9.69% in 2018.
- Industrials – The Industrial sector has been steadily growing in value to the index and now comprises just over 9% (9.13%) of the index.
- Information Technology – Perhaps confirming that London is not a hub for information technology, this sector is only 1.38% of the index and has consistently been around 1% or slightly higher.
- Materials - This sector carries the third heaviest weight in the index at just over 11%. This sector has more than doubled in its percentage of weighting since 2015.
- Utilities – This sector makes up about 2.97% of the index. The weighting in this sector has been steadily declining since it was 4.53% of the index in 2015.
- Real Estate – This sector has only been part of the index since 2016. It makes up approximately 1% of the index which has not varied much in its brief time on the index.
The individual components of the FTSE are adjusted every quarter. Any changes to the underlying index companies and their weighting is determined by the values of the companies at the close of business the night before the review.
How can investors invest in the FTSE 100 Index?
There are a significant number of indexes attached to the FTSE Group including the FTSE 250, the FTSE 350 and the FTSE All-Share. All FTSE indexes have index fund offerings. Vanguard, for example, has the Vanguard FTSE 100 (VUKE) fund.
The final word on the FTSE 100 Index
The FTSE 100 is a market-cap weighted index of the 100 largest companies on the London Stock Exchange. The index is maintained by the Financial Times Stock Exchange Group which is an independent organization similar to the Standard & Poors Company in the United States. The components of the index are determined quarterly. The FTSE 100 has been in existence since January 1984. From its base level of 1,000, the index has climbed to its level in November 2019 of over $7,350. The five largest companies on the index are Royal Dutch Shell, HSBC Holdings, BP, AstraZeneca and GlaxoSmithKline.